SAFE TO START
It has taken two months of remote safety operations to make the site safe for workers, but now excavators have moved on-site on State Highway 1 in Kaikoura. Physical work will begin next week clearing the large slips that have cut off the town from the north.

STILL STRONG DEMAND
The latest tender for 2035 inflation-linked bonds has yielded 2.41% pa (plus inflation), down only marginally from 2.42% last time. Remember, these bonds were bid with a yield of only 1.59% in August last year, so the overall move is quite a way. These bonds are always in heavy demand and today’s tender was no different with a 4.5x coverage ratio.

A SHARP PULLBACK
In Australia, 86% of housing finance commitments went to buy an existing home in 2016, 14% to buy a new-built home. But in December the level of finance commitments for housing fell -7.4% from the same month a year ago, led by finance commitments for existing homes which was down -8.3%.

NOT JUSTIFIED?
In Australia, their central bank released its Monetary Policy Statement today. It was largely positive but they did make direct criticism of recent home loan rate hikes by banks, challenging the argument by banks that hikes are justified because of higher wholesale funding costs. If anything, the central bank said, those costs have fallen. See this on page 43 which shows data of steadily falling funding costs. “More recently, overall debt funding costs are estimated to have been stable, despite a little upward pressure from the increasing share and cost of long-term debt and deposit funding,” they said. So, its not that costs are actually rising, its just a shift in the type of funding banks are choosing to do.

SELECT GROUP STAYS SMALL.
Fitch Ratings now says the number of countries with ‘AAA’ ratings is at its lowest level since 2003 and is expected to remain unchanged over the next two years. Eleven countries currently have ‘AAA’ status, compared with an all-time high of 16 during 2004 to 2009, reflecting the longer term impact of the global financial crisis. Australia is one of them, New Zealand with a AA (Stable) rating is not. Countries with a ‘AAA’ rating now account for 40% of global government debt at end-2016, down from 48% a decade ago. No country with a AA+ ratings has a ‘Positive’ outlook, so there seems little chance the group with AAA ratings will grow any time soon.

WHOLESALE RATES RECOVER SOME
Apparently yesterday’s slump involved overshoot. Today rates have bounced back +1 to +5 bps putting back some more positive slope into curve. One year rates are up +1 bp, two years are up +2 bps, five years are up +3 bps and ten years up +5 bps. The short end is where were in December; the long end is where we were just three weeks ago. The 90 day bank bill rate is unchanged at 2.02%.

NZ DOLLAR SLIPS AGAIN
Yesterday’s big fall has been followed up today with a minor additional slippage. Against the US dollar we are now down to 72 USc. On the cross rates we are at 94.2 AUc, and at 67.5 euro cents. The TWI-5 index has fallen to 77.4. Check our real-time charts here.

You can now see an animation of this chart. Click on it, or click here.